Impact of microfinance on poverty reduction: the case of Gasha microfinance Institution

Abstract

Microfinance can be a critical element of an effective poverty reduction strategy, especially for developing countries. More than ever after the success of the Grameen Bank, the system has been duplicated in the different parts of developing world. Ethiopia is also one of the countries where microfinance has been given due consideration as a safety net for the poor to help them overcome the adversities of poverty. The services provided by microfinance institutions is desired to enable the poor to smoothen their consumption, manage their risks better, build their assets gradually, develop their micro enterprises, enhance their income earning capacity, and enjoy an improved quality of life. This study evaluates the impact of Gasha microfinance institution S.Co in the reduction of poverty. For quantitative analysis both treatment and control respondents were drawn with 220 clients (100 treatments and 120 controls) clients using simple random sampling techniques in Gasha. Descriptive statistics and econometric model were applied for analyzing quantitative data. PSM method was employed to analyze the impact of the microfinance services on poverty reeducation. Consequently the objective of this study is to find out the impact of microfinance towards poverty with a particular reference of Gasha micro finance Institution S.Co. With the above objectives in mind, the research work employed questionnaires, key informants, and focus group discussions to obtain primary data. In addition, secondary sources of data have also been collected from different literature and Gasha annual progress report. The contribution of Microfinance is analyzed based on income, saving, expenditure for health, expenditure for children school, asset accumulation, decision making power, business management skills along with the strength and weakness of the institution among others. The finding indicates that Gasha has made positive contributions to the wellbeing of its client. However, all of Gasha clients are already been involved in a business activity that can generate income for the repayment of the loan. The study revealed that the aim of MFIs to reach out the poorest section of the population has not been achieved due to targeting problems. It was, again, uncovered that, microfinance try as much as possible to reduce the risk involved in giving out unsecured loans. One of their ways of trying to achieve this is by group lending which automatically sideline the poorest since the groups are formed based on the income level of the individual.